Earthlink co-founder
Reed Slatkin, an unregistered investment manager and ordained Scientology minister,
admitted to defrauding clients of approximately 255 million dollars in a Ponzi-type
investment scheme. Many of his victims were fellow Scientologists; others were
wealthy investors with Hollywood connections.

Scientology has a long history of association with financial scams. How much of
the money Slatkin took in was funneled to Scientology organizations? And how many
of his fellow Scientologists were in on the arrangement?

He was a Scientology minister. But, Reed Slatkin left the church for a more lucrative career of crime. Operating as a trader out of his garage, Slatkin claims to have devised a system to gain above market returns.

A former Southern California business consultant received a four-month prison sentence for conspiring to obstruct a Securities and Exchange Commission investigation of financial advisor Reed E. Slatkin’s $593-million investment scam, federal prosecutors said Tuesday.

Daniel W. Jacobs helped stall the SEC for more than a year by pretending to represent a Swiss brokerage holding hundreds of millions of dollars in funds from Slatkin investors, according to his plea agreement with the government.

Jacobs, 63, who pleaded guilty and cooperated extensively with prosecutors, is expected to serve his time near his Michigan home, said Assistant U.S. Atty. Michael Wilner.

At Jacobs’ sentencing Monday in Los Angeles, U.S. District Judge Margaret Morrow also ordered him to repay $450,000 to victims of Slatkin’s schemes.

Daniel W. Jacobs, 63, of Burbank pleaded guilty three years ago after agreeing to cooperate with federal prosecutors in their case against Slatkin.

Authorities say Jacobs lied to the Securities and Exchange Commission and provided false documents so victims’ investment statements in Slatkin’s Ponzi scheme would seem legitimate. He also acknowledged fabricating account statements and setting up false phone numbers to make it seem like a Swiss firm held hundreds of millions of dollars in investor money.

Federal prosecutors announced tax-evasion charges Tuesday against former Grateful Dead road manager Ronald L. Rakow and his girlfriend in connection with a scheme to conceal Rakow’s income, much of which he earned working for convicted Ponzi scheme operator Reed Slatkin.

Assistant U.S. Atty. Michael R. Wilner said Rakow diverted $5.2 million that he received from Slatkin and other sources to his girlfriend, Denise Del Bianco, from 1998 through 2001.

At the time, the Internal Revenue Service was trying to collect $2.2 million in unpaid taxes from Rakow, according to an indictment returned last week. Del Bianco paid income tax on the funds, but the alleged diversion kept the IRS from seizing Rakow’s cash and securities outright, the indictment alleged.

Rakow "falsely made it appear to the IRS that he had only minimal income and assets with which to pay the unpaid tax," the indictment said.

Rakow was charged with tax evasion and falsifying tax returns. Del Bianco was charged with aiding and abetting tax evasion and also with wire fraud.

Former bankers for EarthLink co-founder Reed Slatkin have agreed to pay $26.5 million to settle a lawsuit alleging that they helped him appear to be an investment advisor while he operated a multi-million dollar Ponzi scheme.
Attorneys involved in the 2-year-old lawsuit said the last of the documents were being signed Monday but still must be approved by U.S. District Judge Margaret Morrow in Los Angeles. The recovery would be the largest yet for investors in what Slatkin has admitted was a fraud that began in the mid-1980s and was revealed in 2001.
The settling defendants included Union Bank of California and Bank of Orange County. Other defendants were Imperial Management Inc., the former trust division of Imperial Bancorp, an Inglewood bank acquired in 2000 by Comerica Inc., and Mary Catherine Leider, a former vice president in Imperial’s trust division who handled accounts for some Slatkin investors.

Check out FourStarFraud.com - a site not unlike this one, dedicated to unraveling the aftermath of a high stakes con game. The numbers (200+ million from 500+ investors) and location (Southern California) certainly harken to Reed’s Ponzi scheme. The most significant difference between Four Star Financial Services and Reed Slatkin, though, is that the Four Star fraud was allegedly perpetuated by financial advisors - real ones, unlike Reed and his cronies. Be sure to read the Wall Street Journal article - the top news story on the site.

SEC / Stockwatch

Jean Janu to plead guilty January 12

2004-01-01

Slatkin ex-bookkeeper Jean Janu has agreed to plead guilty at an arraignment scheduled for January 12. From a December 10, 2003 SEC release:

In her plea agreement, Janu admitted that, at Slatkin’s direction, she created and revised account statements and other documents that supported Slatkin’s claim that he held over $500 million in securities in brokerage accounts at the fictitious entity "NAA Financial" of Zurich, Switzerland. Janu knew these documents were to be submitted to the SEC. Janu created these bogus statements on her computer and printed the NAA account statements on blank, European-sized stationary provided to her by Slatkin that contained NAA’s name and purported Swiss address. Slatkin then instructed Janu to erase the account statements from her computer.

The Los Angeles Times reports on what may be an early Christmas present for Slatkin victims -- Trustee Todd Neilson has now doubled his estimate for debtors, and now suggests that investors could get back as much as 40% of their money. Of course, he explained to the court earlier this week, that all depends on whether the net winners pay back the "profits" that came from the pockets of less fortunate Slatkin Investment Club members:

In a memo presented at a hearing Monday before Bankruptcy Judge Robin Riblet in Santa Barbara, Neilson said the 20-cent reckoning was made at a stage of the case when "it was very difficult to estimate with any degree of reasonable accuracy possible payout percentages."

The main reason for the uncertainty was the fact that only some of Slatkin’s clients were paid back more than they invested — a common occurrence in such so-called Ponzi schemes, which use funds from later investors to pay phony profits or dividends to the earliest participants.

Neilson sued 430 of these so-called "net debtors," seeking the return of anything they received in excess of the amount they put in.

So far, 144 of those suits have been settled — typically at about 80 cents on the dollar — for a total of $31.8 million, most of it to be collected in payments over the next two or three years. For example, tobacco litigator John Coale and his wife, legal commentator Greta Van Susteren, agreed to return about $700,000 of the $939,000 they netted.

Suits seeking an additional $138 million are pending against other defendants, including actor Peter Coyote, who made $943,000.

If those defendants "were to simply find it within their hearts and wallets to pay the $138 million without any further litigation," Neilson wrote, it would yield a return to the creditors of 84% of their losses.

But Neilson called that scenario "highly unlikely." A "more realistic approach," according to his memo, would be to assume that 35% of the $138 million can be collected by spending an additional $7 million on litigation — a formula that would bring the recovery to about 40% of the losses.

Slatkinfraud.com wishes the best of luck to net losers, and joins them in hoping that the net gainer gang, in Neilson’s words, "finds it in their hearts and wallets" to help hundreds of investors begin to put the whole Slatkin mess behind them.

slatkinfraud.com

Some Scientologist Slatkin victims still not happy with Neilson

2003-12-11

Despite the good news on higher than expected returns, some of Slatkin’s Scientologist victims have long been unhappy with the performance of trustee Todd Neilson. A small band of aggrieved net losers -- all, apparently, Scientologists -- have launched another court challenge against Neilson’s handling of the case, as reported last week by the LA Times [registration required for link]:

In a letter Wednesday to the office of the U.S. trustee in Los Angeles, the investors complained that 10 legal and accounting firms had submitted $19 million in bills as of June. Meanwhile, unsecured creditors in Slatkin’s bankruptcy have received only $12 million so far.

"We are petitioning you to step in and take action to stop the runaway fees in this case," the investors wrote. "Many of us are middle-income people, who lost substantial sums to Slatkin."

(Curiously, the self-proclaimed pro per Ms. Rosenkranz appears to have misspelled, and then corrected, her own name at the top of the letter. An errant T preceding the Z in her last name seems to have been struck out with a pen on the original document.)

A former associate of Santa Barbara investment scam artist Reed Slatkin was sentenced to five months in federal custody and five months of home detention for obstructing a federal probe and lying to investigators.
Richard D. McMullin, 39, worked as an assistant in Slatkin’s office from the mid-1980s until 1999, handling phone calls from investors, helping to create account statements and researching stocks.
U.S. District Judge Margaret Morrow ordered McMullin to pay a $4,000 fine. Assistant U.S. Atty. Steve Olson said McMullin paid $1.55 million in restitution to the bankruptcy trustee to help make up for his role in the scam, which fraudulently raised $593 million from some 800 investors over 15 years.

Including cross examination of Slatkin associated and alleged co-conspirator Dan Jacobs, profiled here, who does his best to defuse Slatkin’s claim that it was pressure from the Church of Scientology that forced him to misappropriate millions in his failed investment club.

Los Angeles Times

Law Firm in Slatkin Case Agrees to Pay $650,000

2003-09-17

A court trustee says the asset manager’s attorney should have uncovered his pyramid scheme.

Another legal victory for Slatkin trustee Todd Neilson: The Los Angeles Times (original (registration required) or via Google) reported today that lawfirm Bryan Cave LLP, which represented Slatkin during his 2000 appearance before the Securities and Exchange Commission, will pay $650,000 to settle a lawsuit launched by Neilson that argued the firm should have realized that Slatkin was running a Ponzi scheme:

Slatkin’s attorney, Gerald Boltz, a former Securities and Exchange Commission administrator, should have discovered the pyramid scheme in early 2000, shortly after he was hired, Neilson said. But Slatkin’s scheme wasn’t spotted until it began to come apart shortly before he filed for Chapter 11 bankruptcy protection in May 2001.
"Bryan Cave did not recognize possible signs that Slatkin was running a Ponzi scheme, or at the very least defrauding hundreds of investors," Neilson said in a court filing.

Boltz and other Bryan Cave officials declined to comment.

Under the terms of a tentative settlement filed last week, the law firm does not admit to wrongdoing. But it will pay $650,000 to Slatkin’s trust to be distributed to creditors, said R. Alexander Pilmer, Neilson’s attorney.

In his plea before the court, Creditor Committee Co-Chair Greg Abbott said that he came forward not just on his own behalf, but for those who could not afford to be in the courtroom on the day of Slatkin’s sentencing:

I am speaking not just for myself and my family, but for hundreds of smaller investors who can’t afford to come here and speak, who may have in fact been damaged far more in relative terms than I have been, whose collective suffering is monumental. I have commiserated with many of these victims, and they want and deserve justice. Hundreds of lives have been permanently disfigured – not just the victims but their family members and those connected to or dependent on them. The domino effect of misery is too extensive to be measured by just the $240 million lost by them.

Despite the fact that Slatkin will finally be sentenced, Abbott says there are still many unanswered questions as to what became of the millions of dollars in ill-gotten Ponzi gains -- and blames Slatkin’s reluctance to cooperate for allowing alleged co-conspirator and longtime Scientologist Tony Hitchman to flee the country before he could be questioned about his role in the scam:

Slatkin’s stalling enabled one of his oldest buddies Tony Hitchman, who was on his monthly payroll, who owes the Slatkin estate millions of dollars and may have known of the Ponzi from the very beginning, to flee the country just ahead of a subpoena.
Slatkin still won’t answer questions about his hundreds of overseas phone calls, his foreign bank accounts, or his and Ron Rakow’s many journeys abroad. He still hasn’t come clean about the full extent of the gold coins and silver bullion, the crated art, and the staggering amounts of cash the FBI found when they raided his and Rakow’s homes. We strongly suspect he has stashed away millions, which will be waiting for him when he gets out of prison.
Had Slatkin been as proactively helpful to us as he was proactively a criminal -- in the spirit of the plea agreement -- millions in legal fees could have been saved and distributed to victims. Instead, Slatkin and his attorneys are floating a smokescreen of theories in order to obscure reality, from saying that Slatkin made some of us offsetting money at EarthLink to claiming that he was brainwashed by the Church of Scientology.
With all due respect, the only brainwashing that took place was Slatkin brainwashing his investors and the SEC.

As promised, slatkinfraud.com has obtained a detailed summary of yesterday’s hearing from a regular reader and Slatkin-watcher who prefers to remain anonymous. The report gives added colour and context to the story - and it’s almost as good as being right there in the courtroom:

To understand how far Reed Slatkin has come, know that even some of the people who knew him, who invested with him, and who had him over to their homes, did not recognize him seated at the defense table. But then, Reed hardly looked at the Los Angeles courtroom audience of approximately 40 who filled every available seat and even stood at the back, at least at first. Many were the very people he had both befriended and defrauded. Perhaps it was his significant bald spot; did he used to have a toupee? Wearing a green windbreaker, grey t-shirt, blue pants, and white slippers, Reed’s prison garb was not the type of clothing seen at Hope Ranch. Neither were the handcuffs, tied to a chain around his waist, nor the leg cuffs, that he wore the entire time of the four-hour proceeding, but they were pretty much not noticed by many in the courtroom until he rose to speak.

Read the full report here.
slatkinfraud.com would like to thank our correspondent for the time he spent sitting through this hearing, and writing it up for our readers. We’d also be happy to publish any other accounts of the hearing, or any other thoughts on the sentencing of Reed Slatkin from his erstwhile investors. Confidentiality will, as always, be protected. Email info@slatkinfraud.com to tell us your story.

The District Court ruling factors in the harm the former money manager caused bilked investors

[ ... ]
Investors who had criticized prosecutors’ recommendation for an 11-year sentence praised the judge for coming down heavily on Slatkin, 54, who lived on a four-acre estate near Santa Barbara, accumulated an extensive collection of art and spent lavishly on cars and airplanes. But one Slatkin victim, former venture capitalist John Poitras, said the 14-year sentence was too little for someone who cost his purported friends their retirement funds, college savings and proceeds from sales of businesses.

The sentence was "a slap on both wrists" and "an insult to the victims," said Poitras, who lost $15 million. "The system is still broken."

A lawyer for the Church of Scientology praised the judge, saying she "saw right through" Slatkin’s claims about Scientologists. "The church had nothing to do with the fact that he lied, cheated and stole," the lawyer, David Schindler, said after the hearing. Slatkin’s fraudulent financial empire lasted 15 years, dissolving into bankruptcy proceedings in May 2001, leaving investors with a loss prosecutors set at $240 million. Taken into custody in April 2002, he pleaded guilty to 15 counts of fraud, conspiracy and money laundering.
[ ... ]

[ ... ]
U.S. District Judge Margaret M. Morrow rejected defense claims that Mr.
Slatkin had kept his fraud going for 15 years because of his strong
beliefs in - and fear of - the Church of Scientology, saying that she
wasn’t convinced he acted under such duress.

"There is no evidence the church urged the defendant to engage in this
conduct," she said from the bench, moments before handing down a sentence
more than double the 6 1/2-year term urged by Mr. Slatkin’s attorneys. It
is three years longer than the sentence recommended by Assistant U.S.
Attorney Steven Olson, for what was one of the biggest Ponzi schemes in
U.S. history.

"The harm is immense," Judge Morrow noted. "Innumerable lives have been
damaged or destroyed. He even cajoled people with fake illnesses to get
them to invest," all the while living a "lavish lifestyle" filled with
Lear jets, luxury cars, a beautiful home and expensive country-club
memberships.
[ ... ]

LA Times

Defrauded Investors Have Stories to Tell

2003-09-02

Slatkin’s victims, who thought he was a friend, want no leniency at his sentencing today.

On the day of his sentencing hearing, Reed Slatkin makes the front page of the LA Times business section:

During more than 15 years of fraud that cost his investors $240 million, Reed E. Slatkin seemed as much trusted friend as money manager. He schmoozed clients with tips on how to landscape their estates, attended funerals of their family members and all the while offered assurances that he would protect their college and retirement funds.
His victims have asked to tell some of those stories today at Slatkin’s sentencing hearing in Los Angeles, hoping to persuade U.S. District Judge Margaret M. Morrow to throw the book at the former Santa Barbara financial advisor.

Read the full story here (registration required) or a transcript of the text via Google Groups here.

Slatkin, who had a number of celebrity and high-profile clients, had portrayed himself as a shrewd manager whose investments were outstripping the market, but prosecutors said he was actually running a Ponzi scheme.
His attorneys blamed much of his behavior on the influence of the Church of Scientology, of which he was a member and from where many of his victims came.
``There is no question that the hold the Church had on Mr. Slatkin was significant,’’ lawyer Brian Sun told the court. ``It took us a while to de-program Mr. Slatkin.’’
But an attorney for the Church told Reuters that Slatkin’s claims, and those of his lawyers, were all a ruse designed to draw attention away from his crimes.
``We were pleased the judge saw through it,’’ said David Schindler, an attorney from the firm of Latham & Watkins who represents the Church. ``It was shameful of (Slatkin). He sold the psychiatrists a bill of goods.’’

Slatkin’s attorneys claimed he was influenced by the Church of Scientology, from which he has been ousted. His attorneys said investors who did receive returns donated between $25 million and $50 million to the church, an arrangement Slatkin was afraid to end.
David Schindler, an attorney for the Church of Scientology, was present for the sentencing. He said later the comments were outrageous.
The judge noted that during most of the time Slatkin was allegedly in fear, he lived a lavish lifestyle.

slatkinfraud.com

Date confusion - Sentencing hearing

2003-08-29

Slatkinfraud.com would like to apologize for the recent confusion surrounding
the date on which Reed Slatkin will appear before Judge Margaret Morrow for
sentencing.

In the last week, several sources have contacted us to let us know that the
hearing will take place on Tuesday, September 2 at 9:30 A.M.

However, the docket report for Judge Morrow’s court shows the hearing scheduled
for Wednesday, September 3, 2003:

It is very possible that the later date is simply a typographical error on
the court webpage, and we will do our best to clarify this question as quickly
as possible, so that those who are interested in dropping by the courtroom to
watch justice take place will be able to do so.

While attempting to determine the exact date of next week’s hearing, we also
noticed that several of Slatkin’s victims have filed letters with the court
in advance of sentencing, including his fellow Scientologists, Charles Borom
and Charles Ohl:

Given the rumour that Slatkin will attempt to dodge a heavy sentence by blaming
Scientology "brainwashing", we are, of course, most curious as to
how his (former?) fellow Scientologists will react to this particular legal
dodge.

slatkinfraud.com

News from the Slatkin Front - Sentencing Countdown: Six Days to Go!

2003-08-28

To tide over Slatkin watchers until next week’s sentencing hearing, currently
scheduled for September 3, 2003, here are some new tidbits courtesy of the Slatkin
rumour mill.

A correspondent to info@slatkinfraud.com
(anonymous, naturally) tells us that Reed may, indeed, lay the blame on Scientology
brainwashing at next week’s sentencing hearing, and plead for mercy on the grounds
of mental illness.

If this sounds too fantastic for Slatkin-watchers, we offer this entry in the
docket report from the court itself:

Note the report from Sheila Balkan, a Santa Monica criminologist and private
investigator who has authored several widely-cited papers on criminal behaviour
who, in 2001, was touted to be the
"real-life" model for a planned NBC crime drama about a female
criminologist. Will her next role be as apologist for Reed Slatkin?

Since the filing is under seal, we’ll just have to wait until September 3 to
find out, but our correspondent suggests that Slatkin’s attorneys are pushing
for a 3-5 year sentence - far less than the double digits initially sought by
the state. Even if he did throw himself on the mercy of the court with a "Scientology
made me do it" defence, it’s likely that a such a light sentence would
satisfy the hundreds of bilked investors who want to see Slatkin due hard time
for his crimes.

But just how "hard" is the year and a half of jail time that Slatkin
has served so far? Our sources say that far from pining for the fresh air and
unrestricted privileges of his erstwhile Hope Ranch estate, Slatkin is actually
enjoying his time in prison, morphing into a real-life Andy
Dufresne. We hear the inveterate schmoozer is not only winning friends and
influencing people within the convict population, but is actually giving them
investment advice - advice the prison guards are heeding as well!

In other news, we’re told that Mary Jo Slatkin, the embattled soon-to-be-ex
Ponzi spouse, has resurfaced, and is seeking comfort - both emotional and financial
- from her former friends, many of whom were victimized by her husband’s scheme.

According to witnesses who have heard her tale of woe, Mary Jo claims that
the day her husband turned himself into authorities, he blithely informed her
that he was "just going to LA for the day." Of course, he’s been in
jail ever since. But instead of tying yellow ribbons round an old oak tree,
the embattled Mary Jo, who is reportedly facing six figure liens courtesy of
the IRS, is headed off to divorce court to rid herself of her troublesome spouse.

Our source also reveals that up to this point, the Slatkin children have sided
with their father in the familial dispute, who has assured them that the whole
matter is just a big misunderstanding that he will explain later. It’s not clear
whether the Mess’rs Slatkin, who were both submitted
to Scientology auditing performed by Slatkin co-conspirator Dan
Jacobs, are equally serene with their father’s reported about face on his
once beloved faith.

slatkinfraud.com

New Slatkin sentencing date - September 2, 2003 @ 9:30 a.m.

2003-08-22

According to our sources (thanks, everyone!), Slatkin’s sentencing hearing is currently scheduled for Tuesday, September 2, 2003, in front of Judge Margaret Morrow. We’ll keep the site updated with the latest information. We would also love to have eye-witness comments on the procedure, so if any slatkinfraud.com readers out there are planning to attend the hearing, please drop us a line to give us your impressions. We can be reached at info@slatkinfraud.com, and, as always, your privacy will be protected.